Go back one year and you’d find tumbleweeds blowing across the lobby of the Waldorf Astoria.
Today, these same stocks trade near all-time highs!
Our TrackstarIQ data highlighted two in particular with surging interest: Hyatt Hotels (H) and Marriott International (MAR).
Are investors getting ahead of themselves?
That’s what we intend to answer.
It’s a valid question considering the U.S. economy is only now reopening.
And that says nothing about the international markets.
Which is why we dug into the fundamentals to build you the foundation for the investment analysis of these two companies.
Hotels shuttered their doors in the face of the pandemic in March 2020. Since that time, they essentially treaded water.
Before the lockdowns, hotel occupancy rate sat just above 60% for the U.S. market. Winter tends to bring lower occupancy rates, whereas summer is usually closer to 70%.
You can see how occupancy rates barely hit 50% for most of 2020.
What we’re seeing now is a clear resurgence in activity.
Recent hotel occupancy is higher than any point since the pandemic began. U.S. hotel gross operating profit per room (GOPAR) just hit its highest levels since February of 2020.
Across the board, everyone from cruise lines to theme parks are reporting heavy bookings in the coming months.
We want to take a look at two of these hotel stocks that picked up a lot of interest from institutional advisors in our TrackstarIQ data.
Hyatt Hotels (H) vs Marriott International (MAR)
If you’re not familiar with Hyatt hotels, here’s a quick list of their brands.
And a similar list for Marriott.
A key distinction between the two is Marriott operates a timeshare division where Hyatt does not.
Hyatt’s investor presentation revealed some interesting operating comparisons to Hilton Hotels (HLT) and Marriott International (MAR).
When you compare net room growth and average daily rates, Hyatt beats out its peers according to their investor presentation.
Marriott and Hyatt have 65% of their total rooms located in the U.S. and Canada, leaving 35% exposed to international markets. So, neither really has any more risk than the other in that regard.
Looking at the 2020 financial statements doesn’t give us much information as to what the future might look like.
Except for one important point.
Marriott turned a positive operating margin, despite the pandemic, and maintained positive free cash flow. Hyatt didn’t come close.
So let’s take a step back and look at each hotel’s performance over the last few years.
Before the pandemic tore into them, Hyatt hit $7.21 EPS on the back of $6.68.
On the other hand, Marriott turned in $3.80 coming off of $5.38 the year before.
If you make some generous assumptions that both will return to pre-pandemic levels this year, you’re looking at a price-to-earnings ratio (P/E ratio) of 28x-40x for Marriott and 12x-13x for Hyatt.
Our hot take
It’s tough to say where things will land once we get past the initial bump from pent-up demand. But from a value perspective, Hyatt holds the edge. And when you look at the balance sheets, Marriott holds a bit more long-term debt in proportion to its liabilities and equities.